Thought of the Day
January 15, 2010
Partisanship, a fact of life in today’s Washington, is present in the membership of the Financial Crisis Inquiry Commission, a supposedly bipartisan committee which includes six Democrats and four Republicans. It almost assuredly will search out every possible cause of the 2008 credit collapse, but will not delve into the role played by Congress. (In contrast, the 9/11 Commission consisted of five Democrats and five Republicans.)
While rules provide that no member of Congress or any federal, state or local employee may serve on the Commission, it should be noted that the head of the Commission, Phil Angelides, is the former head of the Democratic Party in California, California Treasurer and board member of Calpers, the giant pension fund for state employees.
It has been my contention that blame lies all around – from consumers who willingly took on more debt than they could handle in the belief that house prices would continue to rise; to mortgage bankers and sales people whose only concern was closing the transaction; to bankers who created and traded instruments they knew to be flawed; to investors who willingly and unquestioningly accepted higher than market returns; to rating agencies who, incredibly, two years ago had only twelve companies rated as AAA, but had slapped that label on 64,000 pieces of securitized paper; to a government which, with the Community Reinvestment Act of 1977 (which breathed life into ACORN) had forced banks to forgo lending standards by providing mortgages to those without means.
Since I know that the Commission will leave no stone unturned in terms of the role played by banks, rating agencies and mortgage brokers, questions I would like to see the Commission answer would include:
*What role did the Community Reinvestment Act, a Bill signed into law by President Carter and supported by succeeding Presidents, but especially Bill Clinton and George W. Bush, play in encouraging low income people to take on debt they could not manage?
*Beginning in 2001 President Bush attempted to reform Fannie Mae and Freddie Mac, initially because the “financial trouble of a large GSE could cause strong repercussions in financial markets.” He continued the attempt in each successive year, saying in August 2007, “Congress needs to get them reformed, get them streamlined, get them focused.” Why did Barney Frank persist in preventing reform and how much money did those two organizations pay into his campaign coffers?
*Why was the CDS market allowed to grow to a level that it exceeded by a factor of ten the nominal value of the debt it was insuring? What agency and who in Congress were responsible?
*What is the real relationship between Senator Chris Dodd and Angelo Mozilo and why has Dodd not provided details on the mortgages he received from Mr. Mozilo’s company, Countrywide Financial Corp?
*Early in the financial meltdown, why did it take so long for regulators to suspend mark to market rules? And why did the SEC not enforce rules such as prohibiting naked short selling?
*Why did bank regulators permit off-balance sheet items to balloon to such critical proportions, thereby increasing leverage ratios far beyond legal (and realistic) limits?
While I do not expect any of these questions to be asked and certainly not answered, a responsible Press should raise them. Seeking truth has taken a back seat behind assigning blame and protecting a political class that will, as the Wall Street Journal says this morning, “do almost anything to avoid testifying.” It stands out as another reason why term limits should be imposed on members of Congress, as they have been on our President and many state and local officials.